General Electric Company (GE) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Exceptional Franchise and Industry Leadership: GE Aerospace is celebrated as an exceptional franchise with the industry's largest and growing commercial propulsion fleet, emphasizing its role as the rotorcraft and combat engine provider of choice.

• Significant Orders and Commitments: Announced widebody commitments from Turkish Airlines, National Airlines for GE90 engines, and Japan Airlines for GEnx engines, including a new commitment from British Airways for Boeing 787s powered by GEnx engines.

• Advancements in LEAP and CF34 Engines: Highlighted the certification of the LEAP-powered Airbus 321XLR by the European Union Aviation Safety Agency and the extension of the agreement with Embraer for CF34 engine deliveries.

• CFM RISE Program Updates: Shared updates on the CFM RISE program, focusing on pioneering technologies like Open Fan, Compact Core, and hybrid electric systems, demonstrating significant progress in these areas.

• Strong Financial Performance: Reported double-digit growth across orders, operating profit, and free cash flow, with significant profit and free cash flow growth, giving confidence to raise full-year profit and cash guidance.

Pessimistic Highlights

• Supply Chain Constraints: Acknowledged ongoing supply chain constraints impacting growth across services and new engines, with 80% of material input shortages tied to nine suppliers across 15 supplier sites.

• Lower Engine Output: New engine output was disappointing, down 20% sequentially, highlighting a clear challenge that the company is addressing head-on.

• Need for Accelerated Supplier Collaboration: Emphasized the need for accelerated collaboration with suppliers to resolve constraints and improve material flow, despite significant improvements in many areas.

Company Outlook

• Increased Engine Delivery in H2: Expressed confidence in increasing engine delivery significantly in the second half and continuing to grow shop visits in support of customers.

• Raised Full-Year Profit and Cash Guidance: Based on the strong performance in the first half, GE Aerospace raised its full-year profit and cash guidance, despite reducing revenue guidance due to lower engine output expectations.

• Long-Term Growth and Innovation: Highlighted the commitment to delivering breakthrough technologies in both commercial and defense sectors, with expectations to grow operating profit to approximately $10 million in 2028 and generate free cash flow in excess of net income.

Q & A Highlights

• Q: Are CFM56 customers talking about increasing the work scope of their third shop visits or maybe even doing a fourth shop visit? (Robert Spingarn, from Melius Research)

  A: The CFM56 is expected to have a longer life in many fleets, which will help in the aftermarket, both from a volume and from a scope perspective. (Lawrence Culp)

• Q: Can you comment on the 15 supplier sites and nine suppliers who seem to be the source of the bulk of the delays in parts? (Myles Walton, from Wolfe Research)

  A: Emphasized a collaborative problem-solving approach with suppliers, noting significant improvements in material flow at two-thirds of these sites. (Lawrence Culp)

• Q: Could you discuss the CES margins given the lower LEAP deliveries in the quarter? (Sheila Kahyaoglu, from Jefferies LLC)

  A: Highlighted strong services profit growth driven by improved performance in services from higher volume, pricing, and mix. (Rahul Ghai)

• Q: Can you dig into the lower LEAP shipments in the quarter? (David Strauss, from Barclays Bank PLC)

  A: Acknowledged disappointing new unit deliveries but expressed confidence in the updated outlook for LEAP deliveries and the actions being taken to improve supplier collaboration. (Lawrence Culp)

• Q: What's your confidence in the relative forecasts of the airframers and also their broader supply chain also catching up and delivering the parts? (Robert Stallard, from Vertical Research Partners LLC)

  A: Focused on managing what GE Aerospace can control and expressed high confidence in the updated guidance and the collaborative efforts with suppliers. (Lawrence Culp)